Willingness to Reform is Rolling Backwards

Willingness to Reform is Rolling Backwards

The willingness to reform is going backwards in the governments of German-speaking countries – in Germany, Austria and Switzerland. The most recent „reform barometers“ are creating alarm with business institutions.

For ten years leading business institutions in the DACH countries (D stands for Germany, A for Austria, CH for Switzerland) have been observing the mood for reform in the governments in Berlin, Vienna and Berne. These three countries have similar structures and are highly comparable. Time and again they have been warned about the odd lost year. But this time there is a conerning first: in 2014 the will to reform fell for the first time in all three countries.

Compared with other European nations, Germany, Austria and Switzerland are still considered to be in a good position. But the signals that this position ahead of the rest is being eroded are still increasing. None of the three governments were given a clean bill of health when the heads of the business institutions presented the “DACH Reform Barometer 2014” in Berlin. To summarise: falling trend. Michael Hüther, head of the Institut der the Deutsche Wirtschaft Köln (IW Köln), is missing the necessary willingness by the federal government to work on an innovative policy. The far-reaching resolutions (mother’s pension, pension at 63) that have been passed were counter-productive. Individual reform progress in education and the employment market, according to Hüther, changed “nothing because there is no real, visible willingness to reform in Germany.” It is made more complicated by the fact that for years Germany has been demanding just such efforts and a higher speed of reform from other European partners but have themselves even been going backwards.

The head of business policy at the Austrian Chambers of Commerce, Christoph Schneider, described the situation in very drastic terms: “We in Austria now find ourselves in the valley of tears for the fourth year ,” he said and did not hold back when adding: “Gradually we are running out of hankies.” The Republic has taken a big step backwards andonly very small ones forward; in addition the better growth compared with other EU countries and the Eurozone that has been seen for years has been lost. Even more concerning is that the EU has rising growth whereas the growth prospects for Austria have been revised downwards. “Instead of taking rigorous steps towards reform, in 2014 the government turned the tax screw again”. Austria is just about to follow Sweden in becoming a high tax country. Whereas in Austria the tax and deduction rate has risen continuously, it has even fallen significantly in Sweden. “Austria needs a national location strategy,” demanded Schneider. “The announcement made during the tax reforms to now rapidly focus on other reforms was well-received but now action must follow.”

The Swiss analyst, Gerhard Schwarz, director of the Avenir Suisse think tank, also criticised his country, which to date had always been at the forefront of the three German-speaking nations. “The social state will increasingly become a luxury phenomenon because we believe that we can and have to afford it”. Not at the corporate but at the political level, Switzerland is very satisfied and has become fat and complacent. The recently released franc exchange rate could be a wake-up call for more reform dynamism. “The high franc exchange rate could become a productivity whip for the whole country.”

This article is part of IFAIR’s cooperation with the Diplomatic Magazine and was published first in its February 2015-issue.